Saving Europe

There are almost 40 billion euro reasons that Germany wants to replace Merkel. Since the 1992 Maastrich Treaty, the EU was a dream that portended great things – create a trading bloc and a currency. By 2002 the Euro was created with rules that capped GDP deficit spending to 103%. The rules were almost immediately broken and in the same way the Euro began – with a mandatory conversion that started on inter-bloc countries’ invoices – the Euro is now ending for some constituents. There are 27 members that either adopted the Euro or by signed or unsigned agreement use the Euro to promote trade.

The measures mandated by ECB for austerity have met with agreement with risk managers. The adoption of the austerity measures is another matter politically. In contrast, the United States doesn’t feel the need to address the debt issues precisely because of the U.S. ability to monetize the debt at will. The U.S. is the reserve currency of choice and commodities are bought with dollars. That is the basis why the US Fed can continue to monetize budget deficits adding to the national debt almost indefinitely. The U.S. is spending other countries’ funds to the degree they have to buy USD for reserves and for commodities. It is free money to the U.S. Of course, that is until the USD is no longer the reserve currency and until commodities are no longer priced in dollars. Russia that will control oil pipelines and natural gas (after national confiscation of energy assets by Gazprom, the state owned energy company in November 2012) and may begin to move away from dollarization.

For the EU, they already have the solution. They need to pare down their constituents who break the rules and return them to their own currencies. That will give a lesson to those who oppose the needed solutions. Overnight, the Drachma will replace the Euro in Greek banks at a drastically discounted conversion and they will enter into hyperinflation. That is a good lesson to the social democracies and the U.S. to take on the prognoses offered by ECB. On this course, what the ECB and U.S. Fed will be eventually facing is a mandatory conversion of currency.

Part of the solution is what will happen as a consequence of action against Iran. This was the subject of a recent meeting with the U.S., Germany, Turkey and others. Europe will almost certainly secure energy resources and take an active part in the Mediterranean states to secure EMEA instigating a relations breakdown from the east.

If Europe pares down and stays the course of austerity, and secures EMEA they will recover and rise as a unified political state and challenge the U.S. dominance in reserves (about 70%) and as the commodity world currency enabling the U.S. Fed to monetize at will on others’ funds.